U.S. tariffs on $200 billion of Chinese goods may lead to a permanent relocation of manufacturing companies from China to other Southeast Asian countries.

Some American businesses are looking at relocating manufacturing facilities to places like Thailand or the Philippines. Some Chinese companies are also considering opening up operations outside their homeland. One such business may build a massive tire factory in the Philippines to avoid U.S. tariffs.

Some speculate that the tariffs may lead to significant and permanent changes in the global supply chain. Interestingly, however, Chinese exports were up by almost 16% in October, the first full month of tariff implementation, with companies rushing to send goods to the U.S. before the tariffs rise from 10 percent to 25 percent at the end of the year.

Why are American chains like Pizza Hut, Starbucks and McDonald’s experiencing fast growth and strong success in China?

Three key reasons: Strategic adaptations to the Chinese market and tastes, careful location planning, and adaptation to local cultural preferences in product and service design.

The Chinese have a great desire for goods and services they can trust. Although some Chinese competitors have entered the market with copycat fast food offerings, many Chinese still want the authenticity, consistency, and high quality of well-known Western brands.

1. How do the operations strategies of Pizza Hut differ in China versus in the United States?

Guidance: Whereas Pizza Hut is a relatively less expensive, casual, fast food eatery in the United States, in China it’s an upscale, date-night spot that often requires reservations. Thus, a focus on high quality and service is important in China, whereas in the U.S. the strategy is more focused on short processing time and low cost. This is true, interestingly, even though the standard of living and Continue reading →

It’s your OM in the News roundup! Follow the links to recent posts from our faculty contributors, including thoughtful questions for class discussion.

This week, our posts focus on logistics management, and the ability to deliver.

Supply Chain Failure: KFC’s Chicken Shortage
Why couldn’t the chicken cross the road? Inadequate planning and training, location, and putting all their eggs in one basket. KFC’s switch to DHL has ruffled a lot of features, and the repercussions continue. Read more…

FedEx and Overnight Success
From a mediocre term paper to overnight success, Fred Smith pioneered a delivery empire using the hub and spoke design. Logistically speaking, FedEx has figured out how to deliver the goods. Read more…